06 August 2008

Greek mythology: The SOURCE and Themis

Whether en bloc is a phenomenon or a disease, we need to identify the cause. Without a proper understanding of the cause, neither curative nor palliative measures would be effective. Thus far, the focus has been on consequences of en bloc. Let’s shift focus to the SOURCE of en bloc.

En bloc is created by law. Hence, the source is the law. Can the law be finetuned to minimize the degeneration and divisiveness of our society in en bloc battles? Or better yet, cement our sense of community in forging our nascent nationhood by building upon our sense of time and space? Can it be more balanced to temper the brutal after-effects? Does the law foster our collective aspirations to upgrade? Or are collective sales hastening our downward regression, particularly for privatised ex-HUDC owners who will likely revert to public housing?

The icon for Law and Justice is Themis from the Greek pantheon. You will find her at the main roof gable in the front of the Old Supreme Court Building, blindfolded, holding a sword in one hand and an equally balanced scale in the other. These are very powerful symbols. Why blindfolded? Why a sword? Why a scale? Why is the scale balanced? They speak of a sobering message. They personify a rigorous standard to be upheld.

Does this piece of legislation called the "Land Titles (Strata) Act" (LTSA) answer Themis' call? Or do we care?

LTSA was tightened in Oct 2007 after nearly a decade since Oct 1999 introduction of 80% majority consent (90% if estate is > 10 years old). For so long as Government continues regulatory forbearance in the substantive essence of this law, the disquiet will continue.
STRUCTURAL ISSUES/CURRENT PRACTICES pre-load dice against owners:

1. Price of milk. The price of milk cannot hold for 12 months. How long is Reserve Price (RP) valid for? LTSA has window of up to 12 months, starting from 1st signature of Collec­tive Sale Agreement (CSA) until application to Strata Titles Boards (STB) for collective sale order. A RP carrot, say $1bn, is dangled to induce signature. Once 80% sign, Order 2004 seemingly opens a second window of up to 12 months to find Developer-buyer and apply to STB.
12+12 = A whopping 24 months? Geez, get real, man!

Private sale at own decision takes 3 months to collect money. Collective sale with 80% agreement under full 12+12 windows could take 30 months or more to get $$$ after minimum provision for STB process/sale completion! Doesn’t time-lag increase the risk of price mismatch, making replacement an improbability? Slow-braise or fast-boil, even a 12-month window in moving-market context is untenable. 12+12 is bizarre! Is the law disproportionate and/or misinter­preted?

Sure, Sale Committee could continually up RP. Depending on its skills/desperation quotient, it may choose not to, having secured 80% consent. Is a RP increase of 10% tricky if market is already 20% higher?

2. All that froth. What is even more breathtaking is marketing agents’ rah-rah over en bloc premium. A $1bn RP carrot translates into, say, 80% premium com­pared to private sale – so they enthuse! Seduced by such “windfall” representation made in the presence of lawyers (!!!), you sign. Lo and behold, no lawyer has ever reflected this representation with a marked-to-market CSA clause! Does this pivotal omission by ethical legal professionals whip up froth only to milk owners dry?

As a society, we chose NOT to allow a structure of ambulance-chasing lawyers where lawyers are paid based on a percentage of the judgement award. Yet when this law tampers with natural market forces by (i) obliging Minority Dissenters to sell their homes against their will and (ii) allowing Majority Consenters to sell what doesn't belong to them, then why doesn't the law counter-balance the unrelenting market exploitation of "no sale, no fee" for en bloc lawyers? When a layperson appoints a lawyer to issue a Letter of Demand for a small dispute, it is common practice to require an upfront retainer fee. Yet when a bunch of laypersons appoint a lawyer under the auspices of a Sale Committee for a deal running into hundreds of millions (or billions) of dollars, not a single cent is paid by the people who are so keen to sell other people's property as each of them subsequently signs the Collective Sale Agreement to beyond the tipping point! Sheesh!!!

3. Cost of a cuppa. Before fixing the selling price of a cuppa, you need to know how much it costs to make it, right? In en bloc, how do you establish the equivalent of “how much it costs to make a cuppa”? Many components: (a) residual land value, (b) comparative values from recent private/en bloc neighbour­hood sales, (c) development baseline/ceiling, (d) storey-height limit, (e) develop­ment charges/differential premium, (f) outline planning permit, (g) infrastructural/policy announcements. Establishing these facts incurs 5-figure fees. Who pays if no 80% signature or no developer is interested?

How to overcome dilemma? Pre-Oct 2007, LTSA was STB-centric because it calls for valuation not more than 3 months before STB application. Post-Oct 2007, it is Sale Committee-centric as valuation is required upon close of public tender. When will the law become Owner-centric?

How to set RP without valuation/key facts that could significantly affect land value? When selling other people’s homes (up to 20% against their will), is it kosher to hold-up a finger in the air to set RP without (i) marking-to-market the frothy premium in legal contract and (ii) legislating a reaffirmation mecha­nism by 80% on final terms/RP fixed up to 24 months ago before awarding to Developer-buyer?

4. Dividing pie. How to divide RP in estates with varying unit sizes/share values? Based on strata area only? Share values? 50:50 or 90:10 area/share-value weightage? LTSA is silent despite double-whammy effect because penthouse/big units are usually outvoted even before voting begins!

Deafening silence continues with no sign of industry guidelines despite Sep 2007’s parliamentary comment.

Hence, the field remains clear for marketing agent to carve the pie along the line of least resistance. As the Michael Douglas character in "Wall Street" movie pronounced so definitively: "Greed is Good", the marketing agent appeals to Greed to find the Line of Least Resistance which invariably overlaps with the Line of Most Exploitation where the most number of owners would gain at the expense of the smaller number, never mind whether it is justifiable or equitable. Who cares???

Thus, it is no surprise that 50:50 weightage is commonly bandied around by marketing agent as the "industry standard recommended by the Singapore Institute of Surveyors and Valuers (SISV) and endorsed by Strata Titles Boards (STB) from past cases" (really???). This is how the marketing agent baits an apportionment method that will tempt 80% to bite without independent valuer’s apportionment advice.

To compound matters, LTSA requires valuation report only UPON tender-close (ie, AFTER RP was set, AFTER lawyer drafted CSA document, AFTER 80% (90%) owners signed CSA in the presence of lawyer, AFTER marketing agent advertised tender in a blitz). Is it reasonable to expect the lone valuer to clean-up milk (i) spilled by marketing agent and (ii) lapped-up by 80% Majority, bearing in mind the small business community in the en bloc arena? Singaporeans have fist-fights over Hello Kitty toy! What more when the diffe­rence between various apportionment methods runs into 6-figures?

If the en bloc unravels, both marketing agent and lawyer will walk away with zero fees but saddled with costs running into hundreds of thousands of dollars or more. Knowing this full well, will a lone valuer unravel the en bloc deal cooked-up and freeze-dried by the marketing agent and lawyer by changing or denouncing the apportionment method UPON close of tender? Who’s kidding whom? Anyway, the valuer has an escape valve because valuation is more an art than a science!

5. One collective pie or many individual cakes? What’s the difference when Developer buys an estate because:
(A) the law allows 80% to force 20% to sell (single collective sale) versus
(B) each owner signing separate contract (multiple private sales)?

“Collective sale” must mean identical basis of sale - yes or no? Surprise! CSA allows Majority to re-divide pie such that Owner X gets, say, 7% more to overcome LTSA’s hurdle of “financial loss”. Selective pay-outs under CSA from Developer’s contingency fund (no doubt, these will not disappear but will instead be re-calibrated to avoid latent cluster bombs after the recent Tampines Court failed en bloc). Extra payment under private treaty with gag order on recipient. All these efforts are above-board! Only imagination limits the marketing agent and concert parties, eh?

Many ways to skin a cat when marketing agent is desperate for last few signatures to cross 80% trigger. In the dark alley of en bloc shadows where faeces may be smeared on your front door if it is not already super-glued to the door frame ... and paint stripping chemicals may be sloshed on your family car, how to prove extra money was promised to tip over the cliff? How to prove private sale of #01 was for Owner to (i) get $150k above en bloc price and (ii) collect proceeds in 3 months? All under-table.

Have your cake and eat it too!!! Force 20% to sell by paying MORE to (i) SOME of the Majority Consenters OR (ii) SOME of the Minority Dissenters? Under LTSA, there are 3 main goal posts that would kill an en bloc sale: (a) Financial Loss (based on a convoluted formula far removed from economic/investment principles), (b) Shortfall that would prevent redemption of mortgage/charge and (c) Lack of Good Faith (within the narrow confines of the statutory definition to the exclusion of common law). Yet these goal posts could be removed or relocated by EXTRA payment to SOME owners!

The concept of "First Amongst Equals" applies to en bloc owners too - apparently! Should Majority Consenters get their apportionment of en bloc sales proceeds under the Collective Sale Agreement whilst (i) Minority Dissenters who suffer the convoluted definition of "Financial Loss" get EXTRA CRUMBS from the Developer-buyer to overcome that statutory hurdle and (ii) all remaining Minority Dissenters who are neither "Financial Loss"/"Shortfall" cases also negotiate individually for some ADDITIONAL PEANUTS from the Developer-buyer to cover, say, the en bloc expenses. Perhaps, these other Minority Dissenters may well have a basis because the extra payment to the "Financial Loss" Minority Dissenters would no longer bind these other Minority Dissenters to the apportionment formula in the Collective Sale Agreement???

These may be crumbs and peanuts. Some crumbs are bigger than whole cookies. Not all nuts are of the same size. Whether these crumbs and peanuts are given above-board or under-the-table, there is yet another legislative skewing under the new law! Sigh ... what else is new, eh? Even where the STB exercises its discretion to increase the en bloc pay-out for an objecting Minority Dissenter by the higher of S$2000 or 0.25% of sales proceeds (contributed by all owners), the Sale Committee could reject STB's collective sale order! If the Sale Committee is empowered by law to scuttle STB's order because one owner got extra payment of $2000 from each unit, then does it change the equation if that one owner got the same aggregate amount (or even higher amount) from the Developer-buyer instead?

Now, this monkey is scratching its head – would LTSA's limited definition of "Lack of Good Faith" be upheld if ONLY one unit in the condo was owned by the CEO of Developer-buyer? Wanna place your bet??? I'd say probably not if that unit owner-CEO didn't sit on the Sale Committee or the decision to proceed with en bloc purchase was made by the Developer-buyer's Business Development Division, etc. Sigh ... why have any goal posts in LTSA once the requisite majority consent level is hit? Why be coy, eh? At least, the law should provide clarity that we are being sold down the river! We could then drown blissfully with our Wide Eyes Shut!

Whitewash black without the slightest tinge of grey – undermine statu­tory prohibition? STB-ordered en bloc is a “statutory” sale (very POWERFUL because this law abrogates the private property rights of up to 20% Minority Dissenters) – no longer a “contractual” sale!!! Doesn't this distinction count? Can “contract” circumvent statute” without blinking? A single collective sale OR a disguised collection of individual sales? Befuddling indeed to my little limited brain!
6. One-to-Many Orgy. Agent-principal structure works best in one-to-one relation­ship, even within a multitude of exclusive agencies, where agent/expert knows principal well.

In en bloc, it is the opposite. Agent-principal structure is one-to-many relationship. Sale Committee comprises part-time volunteers who may not be experts in realty, finance, law, economics. Sale Committee cannot know 200 owners’ driving motiva­tion. Compounding it, Committee-Owner commu­nication channel is limited to 4-5 EOGMs by law. Can’t LTSA designate Sale Commit­tee as mere coordinators without all-powerful “agency” rights in CSA to bind Majority-principals?

This bunch of part-time volunteers is committing to a multi-million or billion dollar en bloc deal ON YOUR BEHALF when they don't know you from Adam and you don't know them from Eve! This reality alone should hoist Red Flags all over your estate. Doesn't it? Under the amended LTSA, there may be varying interpretations of the word "consider" that could potentially open a new can of worms if the en bloc sale is eventually via private treaty after the public tender attempt(s). Since we are onto Greek mythology with Themis and all, I hope our lawmakers have not unwittingly lined-up Pandora around the corner. Well, hope is all that I can do because Hope was the only thing left inside the box when Pandora closed it in the nick of time.

7. Yes-Yes; No-Yes. When you sign CSA, you get one-time 5-day “cooling-off period” to change your mind. It helps but precious little with above pre-loading.

After CSA signing: With 12+12 windows and contentions, it may drag past 36 months before you collect money. If you can’t wait, you must sell your apartment to pro-en bloc buyer - it's no longer free market forces at play because you now have one arm tied behind your back in trying to sell your unit. If offered different prices, you can’t sell to the higher-price bidder who will decline en bloc. Your unit is locked as “yes-vote” until CSA expiry/termination even when you/your new buyer sells. If you decline CSA, scam opportu­nities abound to twist your “no-vote” into “guaranteed-yes” by selling to flipper/nominee consenter. Is the arm of law longer on “yes” side?
Just as in Greek mythology where Themis is blindfolded as she holds an equally balanced scale, the arm of the law must not be longer on the side of en bloc consent versus en bloc dissent. Themis is blindfolded, facing straight ahead - she is not blind; nor is she turning a blind eye or turning her head more towards one direction! That much I note of Themis. As a starting point, are our laws just for justice to prevail? Otherwise, would it mean that justice would be dispensed under unjust laws?

Then what would we end up with?
Just injustice OR unjust justice???

Am I a moron? Perhaps. Or do we have systemic oxymorons?
Shouldn't and doesn't our society aspire towards
Just Justice?


Unless there are legislative provisions similar to that in Hongkong that preempts speculative/serial en bloc flipping (eg, ownership tenure of less than 5 years is deemed en bloc dissent), there should be legislative prohibition against deeming en bloc consent from the predecessor owners’ consent prior to application to STB for collective sale order. Such legislative "deeming" is unseemly lol! Real estate is long-term commitment. Despite that, MinLaw rejected parliamentary suggestion that an owner of less than two-year ownership tenure cannot be Sale Committee nominee. Hence, LTSA doesn’t preempt Sale Committee from being dominated by flippers who target estates as a loose terrorist-cell consortium to drive EOGMs in a bid to buy/sell quickly (ie, not necessarily at highest price). Adding salt to wound, LTSA skews resale market towards en bloc by contractual distortion of market forces. Willy-nilly - whatever the Gahmen exhorts on a good day - a confluence of these factors only serve to commoditize "homes" beyond financial trading and right smack into the realm of property speculation and asset bubbles! Way to go, eh?

8. After the implosion. When things go awry, you need evidence to sue. Dissenters typically suffer info black-out except mandatory EOGMs/notices. Consenters too may be misinformed. Can “qualified privi­lege” be claimed for legal advice relied upon in en bloc? LTSA is silent on whether lawyer represents Consenters, Sale Committee or all Owners. But LTSA is loud and crystal-clear in forcing Dissenters to contribute towards legal fees once STB issues order! If “qualified privilege” can be claimed – whether under substantive law or contract – doesn’t this add stinging salt to festering wound when Dissenters are obliged to pay for the very same legal advice that they are denied access to in their quest for justice?

After tightening procedures in First, Second and Third Schedules, LTSA empowers STB to disregard breaches if they don’t compromise anybody’s interests. LTSA amendments also eliminated publication of owner names, making it more difficult to prove misdemeanors now.

Why is burden of proof of “misconduct” on Dissenters? Why not shift onus of proof of “proper conduct” to beyond three Sale Committee members to include their advisors and the counter-party Developer in joint Statutory Declarations? Where such declarations and testimonies given in witness box/affidavits under oath are false, doesn’t it serve public interest to investigate possible perjury? As en bloc expropriates private property, it must not only be white but also seen to be white!
After all this Starbucks (megabucks) talk about milk, froth, pies and cakes ...
With worry lines on his face, the barista serves up a cuppa to the barrister! Kopi-O in all its ominously dark glory! Till we meet in court - so bids the barrister to the barista as he gulps down the cuppa before rushing off for the next en bloc legal battle in his 2nd Porshe!

The above is distilled from some of the points made in my mega 4-part Nov 2007 blog entry ("After the 2007 law, what's next???") under Part D - Tips on what to do and what NOT to do in a new en bloc sale. "Problems" - there always will be. What's more constructive would be "Solutions" - part of my proposals are re-summarized in my 7 Aug 2008 blog entry entitled "So, what's the alternative in the END?"
http://singaporeenbloc.blogspot.com/2008/08/so-whats-alternative-in-end.html

5 comments:

Anonymous said...

Hi Pariah,

The best insights I have read insofar. What you write hits on so many nerves, the right nerves that need considering in this land of en bloc rah rah.

Anonymous said...

Whoever owns this blog, I would like to say that he has a great idea of choosing a topic.

The nice thing with this blog is, its very awsome when it comes to there topic.

Comment by The Pariah: The original author included identity in original comment postings. I have deleted the comment postings at author's request. Hence, I am re-posting them under "anonymous" identity.

Anonymous said...

The Pariah,

How true of the sad state of consequences of LTSA.

Will government ever takes notice of the situation??

Latika said...

Thanks for writing this.

The Pariah said...

Thank you, Latika, for taking the time to read my blog.

I started this blog when I realized that many owners - when faced with an en bloc prospect - are not sure about their rights, the due process/timeline under the law, the potential pitfalls created by this piece of legislation and prevalent industry practicecs or how things could go awry. What is hype and what is real? What is half-truth and what is fact?

This state of affairs is not surprising because most of us would NOT have a wealth of en bloc experiences in our life time unless we are serial condo raiders or flippers, right?

Not that I know a whole lot about en blocs! I just do my little bit to prod and probe. So feel free to add your views (and get your friends to add their views). There is much to learn from each other, eh, Latika?